The NewsHour with Jim Lehrer

JIM LEHRER: Good evening. I'm Jim Lehrer. On the NewsHour tonight: Our summary of the news; then, the latest, plus analysis of the surging mutual funds crisis; a look at the civilian contracting for rebuilding Iraq; a report on Washington State's referendum on ergonomics rules; details of the CBS decision to scrub its miniseries on the Reagans; and some words and pictures about a scientific development called the string theory.

NEWS SUMMARY

JIM LEHRER: Three explosions rocked the center of Baghdad today. Iraqi police said mortars hit inside the U.S. Controlled green zone, where U.S. Military bases and Iraq's coalition headquarters are located. The compound was also the target of a mortar attack last night. The Pentagon reported three coalition personnel wounded in today's blasts. Earlier today, a roadside bomb in the capital killed one American soldier. Spain today said it had reduced its civilian staff in Iraq, following the attacks on foreign targets. Prime Minister Aznar said the pull-back affected some embassy workers and Spaniards assisting the U.S.-led coalition. He said it was not "an evacuation." And Turkey said it would not send peacekeepers to Iraq unless it was invited to do so by Iraq's governing council. Turkey's parliament approved the troops last month, but several members of Iraq's governing council have since opposed their presence on Iraqi soil. President Bush reacted publicly for the first time today to Sunday's deadly attack on a U.S. helicopter in Iraq. The Pentagon now says 15 U.S. Soldiers were killed, and 25 were wounded, when their transport helicopter was shot down west of Baghdad. Mr. Bush said he mourned with the soldiers' families.

PRESIDENT GEORGE W. BUSH: I am saddened any time there's a loss of life. I'm saddened because I know a family hurts. And there's a deep pain in somebody's heart. But do I want to remind the loved ones that their sons and daughters, or sons in this case, died for a cause greater than themselves, in a noble cause, which is the security of the United States.

JIM LEHRER: For the record, one woman was among the U.S. soldiers killed aboard the helicopter Sunday. The president spoke while on tour of fire-damaged areas of southern California. Nearly 750,000 acres have burned there so far, killing 22 people and destroying more than 3,500 homes. Spencer Michels has our report.

SPENCER MICHELS: California Governor Gray Davis and Governor-Elect Arnold Schwarzenegger greeted President Bush upon his arrival today in San Diego County, the area hardest hit by the wildfires. After surveying some of the devastation by air, the president toured the scorched community of Harbison Canyon and comforted families. Two-thirds of the neighborhood has been reduced to rubble. The federal government has extended more than $ 3 million in assistance. Fire officials reported some good news today: San Diego County's massive Cedar fire, which torched more than 280,000 acres, was fully surrounded by fire breaks. And four other smaller fires were expected to be contained by the end of the day. Chilly wet weather has helped in the effort. Overall, wildfires burning for nearly two weeks in southern California have destroyed some 3,600 homes and charred more than 743,000 acres.

PRESIDENT GEORGE W. BUSH: May God bless you all. May God bless California.

SPENCER MICHELS: After President Bush was briefed by local officials in El Cajon, he thanked emergency workers for what he called a superhuman effort to save lives. Although some 53,000 people have been allowed to return to their homes, or what's left of them, more than 27,000 remain displaced.

JIM LEHRER: Voters across the country headed to the polls on this off-year Election Day. Kentucky and Mississippi were set to elect governors. Republican candidates are slightly favored in both states, where Democrats currently hold office. Philadelphia, San Francisco, Indianapolis, and Houston all are choosing mayors. And state legislative races are being held in Kentucky, Virginia, and New Jersey. Sri Lanka's president shut down the parliament for two weeks and fired three cabinet ministers. She did so while her political rival, the prime minister, traveled to Washington to meet with President Bush. Military troops also were deployed around the capital. The president's actions were seen as an attempt to tighten control over the government. But they could threaten peace talks with the Tamil Tiger rebels. Their 20-year battle for a separate homeland has resulted in 65,000 deaths. Prudential Securities today became the latest target of a probe into the mutual fund industry. State and federal regulators charged six former employees of Prudential's Boston office with improper trading. The complaint alleges they made thousands of illegal after-hours trades, used false identities for themselves or their customers, and claims the company ignored warning letters about the practice. Yesterday, the head of Boston's Securities and Exchange Commission office resigned over criticism he'd reacted too slowly to allegations of improprieties at another brokerage firm. We'll have more on this story in a moment. The former head of the HEALTHSOUTH Corporation was indicted on 85 federal counts today, alleging he masterminded an enormous corporate fraud scheme. Richard Scrushy is accused of personally pocketing more than $ 1/4 billion. He's the nation's first CEO to be charged with false certification of corporate statements under a new federal law. In Washington, Assistant Attorney General Christopher Wray said Scrushy used threats and payoffs to mask his involvement in the wide-ranging scheme.

CHRISTOPHER WRAY: Instead of telling the public the truth, Scrushy and his accomplices lied. They cooked HEALTHSOUTH books and filed false financial statement was the SEC to cover up their scheme. Because Scrushy's own compensation was tied in mart to HEALTHSOUTH's performance, the scheme enabled tom pay himself vast sums of money in the form of salary, bonuses, and stock options.

JIM LEHRER: Scrushy pleaded innocent to all charges in an Alabama courtroom today. He'll wear an electronic ankle bracelet while he awaits trial. Retail giant Wal-Mart said today it has received official notice that it's being investigated for possible federal immigration violations. A spokeswoman said the company had received a target letter from the U.S. Attorney's Office, but no individual employees had been singled out. Last month, federal agents arrested 250 illegal immigrants as they came off the overnight cleaning shift at Wal-Mart stores across the country. On Wall Street today, the Dow Jones Industrial Average lost more than 19 points to close below 9839. The NASDAQ fell more than nine points to close below 1958. And that's it for the News Summary tonight. Now it's on to the mutual funds scandal, the Iraq contracts, ergonomics in Washington State, the end of the Reagan miniseries, and the string theory.

FOCUS MUTUAL FUND FRAUD

JIM LEHRER: Another day of congressional hearings, and of growing questions about the mutual fund industry. Margaret Warner has our story.

MARGARET WARNER: Securities and Exchange Commission officials told today's House hearing they expect to charge more firms in their ongoing probe into the $ 7 trillion mutual fund industry. Among the questionable practices being examined: Late trading-- allowing a favored investor to buy fund shares at the closing price after the 4:00 P.M. close. That lets the investor profit from late breaking information; and market timing: Letting favored investors make quick in- and-out trades to exploit the fact that mutual funds are priced only once a day, but stock prices change constantly around the world. Average fund investors aren't allowed to do that. At today's hearing, former SEC Chairman Arthur Levitt issued a harsh indictment of these and other industry practices.

ARTHUR LEVITT: Investors simply do not get what they pay for when they buy into a mutual fund, and most investors don't even know what they're paying for. The industry often misleads investors into buying funds on the basis of past performance. Fees, along with the effect of annual expenses, sales loads, and trading costs, are hidden. Fund directors as a whole exercise scant oversight over management. The cumulative effect of this has manifested itself in the form of late trading, market timing, and other instances of preferential treatment that cut at the very heart of investor trust. It would be hard not to conclude that the way funds are sold and managed reveals a culture that thrives on hype, promotes short- term trading, and withholds important information.

MARGARET WARNER: For more we turn to Donald Langevoort, a former special counsel at the S.E.C., Now a professor at Georgetown Law School; and John Bogle, the founder and former CEO of the Vanguard Group, a leading mutual fund firm. He testified yesterday before a Senate subcommittee looking into the scandal. Welcome to you both. Professor Langevoort, we heard Arthur Levitt just say that the average investor isn't getting what he paid for. Explain to us how the average investor loses financially if some investors are getting this preferential treatment.

DONALD LANGEVOORT: Well, let's imagine somebody is allowed to do either late trading or a market timing. Most of us, if we were invested in a technology fund, for example, and after 4 o'clock, Intel announced that orders for chips were way up... so we know tomorrow, tech fund prices... values are going to go up, we'd be able to share in that good news, the profits that come from that. Along comes some hedge fund, muscles their way in at ten minutes after 4 and gets to share in some of those profits with us. Had they not done that, we would have gotten the money. Every bit of profit they get comes out of our pockets.

MARGARET WARNER: Mr. Bogle, so how long has this been going on, and how much do you think average investors have lost cumulatively from these practices?

JOHN BOGLE: Well, it's hard to lump them all together, butI can tell you these rapid trading practices have been going on for every bit of a decade. The idea of trading on international datelines is not a very well-kept secret. It's been written up in financial analyst journals. And the mutual fund industry has... the time period at which mutual fund investors hold their shares used to be as long as sixteen to eighteen years, and now it's two-and-a-half years. We've turned a great long-term investment idea into a medium for short-term speculation, and it makes no sense at all.

MARGARET WARNER: All right, let's try to explain how this could have happened, and Professor, let me start with you and start with the fund managers themselves. Why do they give certain customers this preferential treatment to engage in this?

DONALD LANGEVOORT: Well, this is the key. A fund manager, the advisor to the fund, usually is compensated based on the size of the fund. You get 1.25 percent of the assets each year as a fee. That's where their profits come from. So they're... what they're interested in is the size of the fund. So if a big hedge fund comes in and says "I'll put $ 2 million in your fund if you give me preferential treatment," it's awfully tempting for the people at the mutual fund advisor's office to say "okay, we make money from that."

MARGARET WARNER: Mr. Bogle, is that it? The financial incentives are just the wrong way?

JOHN BOGLE: Well, it goes actually much further than that. It's not only having the money under management. We've found the record is quite clear that some of these advisors were lending money at excessive interest rates to the people that were doing this trading, the advisor being... the fund manager being a bank as well. There are also a number of cases where the hedge fund would put what has come to be known as sticky assets... we have our own vocabulary now for all this. They'd put assets in the manager's other funds where they were going to leave them for a while. So it's three levels of payola that are going on here.

MARGARET WARNER: And what about the boards of directors, Mr. Bogle? I mean, were they just asleep at the switch or are they somehow complicit as well?

JOHN BOGLE: Well, you know, there's an old saying that says when you have strong managers, weak directors, and passive owners, it's only a matter of time until the looting begins. And the directors have been weakened greatly by a structural flaw in the governance of this industry, and that structural flaw is that funds don't manage themselves. There's an outside company that's in the business of managing the fund. Even if the fund is $ 100 billion, the fund complex is $ 100 billion in size, it still somehow needs to go out and ask somebody to manage it for itself. And the fund shareholders don't get adequate representation through their board of directors. That's the crucial thing.

MARGARET WARNER: What would you add about the boards?

DONALD LANGEVOORT: The one thing I would add to it is, shareholder democracy doesn't exist in the fund industry. We vote or we throw our proxies in the trash or whatever we do with them, but by and large, it's the advisor who controls who the directors are. And as long as that's the case, the problems are going to persist.

MARGARET WARNER: But do the directors also have a financial incentive in, in fact, letting some of these practices happen?

DONALD LANGEVOORT: The outside... I'm sorry. The outside directors probably don't. Those who are affiliated with the advisors certainly do. The problem is lack of incentives. It's that they're asleep because the incentives simply aren't there.

MARGARET WARNER: Mr. Bogle, you were trying to get back in.

JOHN BOGLE: No. I was just saying the amazing thing is that for anybody that's paid attention, all of this was obvious. For example, one of the funds that was engaged in this rapid trading by shareholders, market timing, had $ 2 billion worth of assets, it happens, in the year 2002, and they had $ 9 billion worth of share liquidations. In other words, $ 9 billion name and $ 9 billion went out on a $ 2 billion fund. That's a 450 percent turnover rate. That's not a secret. It's in their annual report. It's in... the percentage is not there, but the dollars are in there, every... semiannually and annually each year, and all someone had to do is take the trouble to open the annual report. If the directors didn't take the trouble to do that, I'd say shame on them.

MARGARET WARNER: And that brings up the question, Professor Langevoort, formerly of the SEC, why the regulators... if this has been so obvious, it's been in the financial press for years, why weren't they stopped?

DONALD LANGEVOORT: That's a good question that the SEC is struggling to answer. To be somewhat defensive, we've asked the same question after Enron and WorldCom and a host of other scandals. The SEC is a small agency. There are lots of mutual funds, lots of brokers out there. Frankly, the ability of the commission to survey the industry isn't there.

MARGARET WARNER: Do you agree, Mr. Bogle, the SEC is just outgunned?

JOHN BOGLE: Well, probably a little more charitable and perhaps even a little bit more accurate to say they're definitely under- resourced. They haven't had enough budgetary support, and for example when I testified at the Senate yesterday, and the chief of the division of enforcement was there. He mentioned that a tip on the Putnam case had come into their Boston office and was ignored. He also mentioned something else, which will give you an idea of the dimension of the problem, and that is they get a thousand letters a day from fund investors saying "this is wrong" or "that is wrong," a couple hundred thousand letters a year, and it's just almost impossible for them to have the staff to say "this is just a garden- variety complaint, or this is a nut case, or this is a very serious issue that's been brought up here." So more resources is parts of it.

MARGARET WARNER: It's hard to sift through this, the unhappy investors who've lost money versus those who really have something to report. All right, so Professor, what needs to be done? How to fix this?

DONALD LANGEVOORT: Well, we can fix the late- trading, market-timing issues, and already proposals are going on the table.

MARGARET WARNER: Are you talking about now legislatively or through the SEC?

DONALD LANGEVOORT: I suspect we'll see both kinds of actions. The SEC can... it's closing the door after the horses have left the barn, but yeah, we can have much firmer rules about what funds can and cannot do in exercising discretion over when orders are posted. It's not going to eliminate all the problems, but it will tighten things up. The question that we really have to face up to is the more systemic one. The abuses are here in market timing and late trading now. There are abuses in fees, brokerage activities, hundreds of places you want to look to. And you can fix this one. The question is, ought we revisit the question of directors? Is there something we can do to give the directors spine, maybe have a different kind of person, different nominating process? We certainly have to upgrade the SEC staff and make policing real. We send a letter of thanks to Eliot Spitzer for being another cop on the beat. I'm not sure there's a single solution, but there are a lot of things that have to be done.

MARGARET WARNER: What's your favorite remedy, Mr. Bogle?

JOHN BOGLE: We have to improve the governance system, and that will require legislation. We need... right now it's very typical for the chairman of the board of the management company to be chairman of the board of the fund. And can you imagine? He's negotiating with himself on the amount of fees the fund is paid. I mean, it's absurd when you look at it that way. So that's change one. Number two, I think the investment advice should have no more than one seat on the fund board, to make sure it's almost totally independent. Number three, I happen to believe that we need a federal statute of fiduciary duty, saying it is the duty of directors to make sure that funds are organized, operated, and managed-- that's the language that's in the act now without the fiduciary duty section-- in the interest of fund shareholders, rather than the interest of fund advisors and distributors. That would be a good start.

MARGARET WARNER: All right. Thank you both very much.

FOCUS CHANGING THE RULES?

JIM LEHRER: Next the effort to revoke ergonomics rules in Washington State. Lee Hochberg of Oregon Public Broadcasting reports.

LEE HOCHBERG: These drywall installers building a house near Olympia, Washington, do some heavy lifting. Each board is 90 pounds. And they perform many repetitive, awkward, gripping motions-- reaching up and down to drive screws and nails into the walls, jobs that can leave them sore at day's end. Washington is the only state in the nation with rules designed to prevent musculoskeletal, or ergonomic, injuries. The rules have been praised by health and labor experts nationwide for preventing workplace injuries. They've even been copied and adopted by the U.S. Navy. But business leaders have twice tried to overturn the rules in court, and again in the state legislature. When those approaches failed, they sponsored Initiative 841 to eliminate the rules.

SPOKESMAN: Businesses will avoid the millions it costs to comply by leaving Washington. The rule puts people out of work.

LEE HOCHBERG: Supporters of initiative 841 have linked the workplace rules to a sagging economy. Campaign spokeswoman Erin Shannon:

ERIN SHANNON: We've got businesses that don't want to locate to this state, we've got businesses that are leaving this state, we're the third highest in unemployment, and we're doing everything we can to drive businesses away.

SPOKESPERSON: Initiative 841 would repeal common sense protection.

SPOKESPERSON: The opposing campaign to save the ergonomic rules is led by physicians, nurses, and labor leaders, who say the rules prevent thousands of injuries.

KAREN KEISER, Washington State Labor Council: We do not think that it will cost any jobs. In fact, we think it will save jobs because it will save thousands and thousands of dollars in unnecessary cost now that are going to these injuries.

LEE HOCHBERG: The Washington State Labor Council's Karen Keiser notes the federal ergonomics rule was repealed by President Bush. She says discarding Washington's rule would be a follow-up blow to worker safety.

KAREN KEISER: We see it as blood in the water, that they're trying to rip out this most progressive workplace standard in the nation, and if they can do it here, they can do it anywhere. And there won't be another ergonomics rule anywhere if this one goes down, you can bet on that.

LEE HOCHBERG: The Washington rule requires businesses to try to fix jobs in which employees spend a cumulative two to four hours per day in any of 14 hazardous positions -- like this one where a worker has to hold his hands above his head much of the time; or this one, where a worker keeps her back or neck bent more than 45 degrees. The state's director of health programs, Dr. Michael Silverstein, says bad ergonomics cause 50,000 workplace injuries per year in Washington State.

DR. MICHAEL SILVERSTEIN: Carpal tunnel syndrome, low- back injuries, tendonitis, shoulder problems have been the single largest unregulated, uncontrolled safety and health hazard in the country today. We're talking about the kinds of problems that destroy workers lives.

LEE HOCHBERG: Silverstein says the rule only requires employees to do what's "technologically and economically feasible." The state points to the experience of Tacoma's P.W. Pipe Company, a workplace of 65 that manufactures plastic pipe. Ergonomic injuries were commonplace there until managers reconfigured hazardous work sites. Health coordinator Swannie Swanson:

SWANNIE SWANSON: Shoulder strains, back strains, pulled muscles, sore neck. And then now, we have so few, we might have a pulled muscle maybe once every two or three months.

LEE HOCHBERG: Swanson showed us some fixes the company made. It installed this device that rotates large pipes so that their wide ends are stacked alternately side-to-side for shipping. It saves workers an ergonomically hazardous above- the-shoulders spin movement. Crucial functions across the plant have been moved from the floor to an easier-to-access waist level to minimize bending. And employee Dusty Hughes, who mixes powders to make pipe compound, is using a scoop with a new handle. It's ended the wrist cramps that threatened to sideline him from work.

DUSTY HUGHES: I didn't understand what was causing the pain, and after we had studied some of the ergonomics I realized that it was my gripping. You're having to grip pretty hard. So we've come up with this solution which allows me to have my hand in this position, and I can almost not grip it. I'm barely holding it right now. It makes it so comfortable.

SPOKESMAN: The end cost was $ 45 for the attachment. So it was just minimum in cost, but we know it's definitely going to save us from having an injury.

LEE HOCHBERG: PW Pipe says it invested $ 675,000 on its ergonomic improvements, and has saved more than $ 75,000 a year in reduced health care and disability payments. But the ergonomic rule has been greeted warily at many Washington grocery stores, where lots of changes may be needed. The state says grocery workers suffer more than 2,000 ergonomic injuries in Washington every year. Some grocers have installed check stands where customers unload groceries themselves. That saves checkers the repeated lifting of items from carts. And new price scanners scan at a better angle, saving checkers repeated awkward twists of the wrist. At the Bayview Thriftway in Olympia, grocer Kevin Stormans says he spent $ 7,300 to install new bulk-food dispensers that can be loaded at chest level. But he says meeting all of the state's requirements could put him out of business.

KEVIN STORMANS: There's no way. We don't make enough money to satisfy that. You can't just say, "well, let's have everybody go change scanners. Let's go have them spend a lot of money ripping out good scanners and putting these in because they're better." I mean, there's just not the money there.

LEE HOCHBERG: There's been contentious debate over the real cost to business of Washington's rule. The state estimates it at about $ 70 million a year, which it says will be made up for by a reduction in the amount industry pays in injury-related medical costs and lost wages. Business claims the rule will cost it ten times what the state says. Washington voters are deciding on the measure today.

FOCUS PAYING FOR PEACE

JIM LEHRER: Now, Gwen Ifill has our Iraq story.

SPOKESMAN: The conference report is out.

GWEN IFILL: Congress agreed this week to sign off on an additional $ 87 billion to occupy and rebuild Iraq and Afghanistan. But billions of dollars have already been spent fixing oil pipelines, reopening schools, rewiring electricity and communications. But a new report from a government watchdog group suggests insider connections may have helped certain companies win contracts. The report, entitled "Windfalls of War," finds $ 2.3 billion went to Halliburton Company's Kellogg, Brown, & Root subsidiary to repair Iraq's oil industry. Vice President Cheney was once Halliburton's CEO, but says he has had nothing to do with the Iraq contracts. More than $ 1 billion went to the Bechtel Group to rebuild electricity, water, and sewage and airport facilities. Bechtel has also given more than $ 3 million to Democratic and Republican campaigns, but says there is no connection. In fact, 53 companies listed in the report have made campaign contributions.

SPOKESMAN: The President of the United States.

GWEN IFILL: And President Bush received more contributions from these sources than any other politician has in the last dozen years. At the State Department, which administers some of the contracts, spokesman Richard Boucher defended the process.

RICHARD BOUCHER: The bidding in Iraq was a competitive process. It was fully in accord with the regulations. The contract, for example, that Bechtel was awarded for capital construction had ten firms invited to bid. Seven firms actually submitted bids. Bechtel got the contract because they had the highest technical merit scores and the lowest cost, after an aggressive review by the career civil servants who handled this procurement matter.

GWEN IFILL: But yesterday, just before Congress approved more money for Iraq, Senator Byron Dorgan told a Democratic policy committee hearing there's no accountability for how the funds are doled out.

SEN. BYRON DORGAN: There is very little here that gives me confidence that this money is going to be spent effectively. You know, this is going to be like the sound of hogs in the corncrib. When you see billions and billions and billions of dollars available for contracts, and it's "Katie, bar the door" on accountability, and companies are going to want to get their mitts into this and move over to Iraq and get money through their hands. And I think the taxpayers have the capability, the very likelihood of being fleeced here.

GWEN IFILL: Democrats and Republicans in Congress have pressed for a more open contracting process and outside audits.

For more, we're joined by the report's lead author, Charles Lewis. He's the founder and executive director of the Center for Public Integrity, a nonprofit investigative research organization based in Washington. Joining him is retired Army Major General Patrick Kelly. He was the commander of the effort to rebuild Kuwait's infrastructure after the first Gulf War.

General Kelly, what is your overall reaction to the findings of this report?

MAJ. GEN. PATRICK KELLY: Well, I was just made aware of it recently, and I will just give you a quick comment. From what I've seen, that the procurement especially by the Army Corps of Engineers which is the one I'm most familiar with, it looks like they are accomplishing their procurement very similar to what we did in Kuwait. In Kuwait we went in right after the war, we had an urgent situation, a compelling situation in which we had to have contractors in Kuwait ready to handle the infrastructure right away. And have you to have limited procure not do that, you can't have an open and full procurement because it takes so long, usually six to nine months. So what happens is you identify companies that have the potential to do the scope of work you want that can mobilize quickly, and that can have the talent, namely the personnel talent to go in and accomplish the work. And I think that's pretty much what happened, from what I can see, in Iraq as well.

GWEN IFILL: Mr. Lewis, it sounds like what we're talking about is convenience, and finding the people who can do the job in the most, with the most alacrity, as quickly as possible. Is that what you also found as part of your research?

CHARLES LEWIS: We should stop for a second. There was no listing anywhere in the U.S. Government about who was getting contracts in these two countries. So our main job was to merely establish contacts, who's getting what, and how much. So we were not on the ground in either country trying to see who was there for five or ten years waiting to get a contract or how much expertise they had. But there are thousands of companies in the U.S., and there are lots of contractors who are very angry who have complained publicly not getting contracts. In the last several months there's been controversy, also know, around Halliburton since early this year when they had a sole source contract that could be as high as in the billions of dollars. One other company in particular came out from Texas and said that they couldn't get their phone calls returned. So I'm not at all persuaded that the only companies are the ones that got one and two billion dollars in contracts. I think that the biggest problem we found is we couldn't get a straight answer from anybody. We had to do 73 Freedom of Information requests; we had 20 people calling all the time for six months. We need to be able to get information about our government more easily than. The average citizen is not going to be able to do that and not going to take the time to do that.

GWEN IFILL: In addition to trying to get the information, you also concluded or at least you suggest in your public statements after the report was released that there was a quid pro quo at work here.

CHARLES LEWIS: Well, I suggested that we noticed that there was millions of dollars flowing, all the folks that got contracts are political players, they spend millions of dollars on contributions and/or lobbying fees. And, you know, I can't prove a one to one correlation, I can't flatly state that this company got it because of the money. But I also think the public has a right to know that there is an attempt to influence government in the form of these payments, and that's why we listed that information on our website.

GWEN IFILL: General Kelly, in your experience, there's an attempt to influence government by the way these contracts are let, by the way these contracts are solicited?

MAJ. GEN. PATRICK KELLY: I can't speak for everybody. But I will tell you about my background -- I was in the Army Corps of Engineers for 33 years, and the last 15 of which not only was I commander but I was a contracting officer. In that entire time I had no political influence rendered to me to point a contract in a certain direction. But let me just quickly cover two points that I think I would like to respond to Mr. Lewis. One is that at the end of a war, there is chaos, and there's an emergency situation in which you bring in a contractor as I said before who can mobilize, who has the talent, and can have the personnel there in a hurry. In Kuwait I remember when at that time Col. Lecursio, now Brigadier General Retired Lecursio moved into Kuwait, he was there three days after the war ended and he had four or five U.S. contractors that they had previously selected along with him to do the necessary tasks. Then what happens is after a period when you have operations are stable and you've got security, in the case of Kuwait that was three months, in the case of Iraq it's taking a little bit longer as we all know. But then what happens is you shift from the emergency to a more permanent procurement system. And in fact in six months we were now having full and open competition, worldwide. We also imposed small business and small disadvantaged business goals. And I see the same thing will occur in Iraq, in fact it's occurring right now.

GWEN IFILL: Mr. Lewis, what about that, what the general is suggesting is that there are two stages here, one is the emergency stage, which what is we've been seeing in the last six months, and that next everything begins to play out the way we're used to seeing it play out in contracting in this country.

CHARLES LEWIS: You know, I'm a little more skeptical about the contracting process, whether it's in one phase or another face. With all due respect to General Kelly, his own company has $ 1.1 billion in contracts this year and they lobbied $ 40,000 with Patton Bogs. We have a culture issue here. There's a group of companies and there are billions of dollars given out and they are frequently the same companies year in and year out. You go from one conflict to another conflict, to another conflict, the exact same companies and they are peopled by former generals and former officials and that's sort of how the system works. And yes, law, followed, but in a number of cases there is no competitive bidding, and get informing about the contracts is virtually impossible. The State Department has not released any information us to for half a year about the contracts they let. We know we're talking hundreds of millions of dollars at least. We can't get an answer. That's not right.

GWEN IFILL: General Kelly, I do want to you talk about the transparency question, but I also want to you respond to what Mr. Lewis just said which is that you and the company you now work for might be part of the problem.

MAJ. GEN. PATRICK KELLY: Well, I would like to point out the company they work for, Western Solutions, which is an environmental engineering firm, has no contracts in Iraq. That's why I'm here. If I had contracts or we had contracts, I would have a conflict of interest appearing on this show. Let me just point out, though, something that I would like to just expand a little bit upon. If you take the Corps of Engineers, and I know that system so well, they do things very well. They manage their contracts well they produce quality work. And they really stress public integrity and public procurement integrity. In the case of one of the companies that was cited by Mr. Lewis, which is Kellogg Brown and Root, they, they, the Army and the Corps of Engineers exercised an existing contract with the Army that I might point out was consummated during the Clinton administration. It was not consummated in this administration. And they took that existing contract and then they realized that Kellogg, Brown and Root had the necessary skills, they were in the MidEast, and they could immediately go into Iraq and help restore the oil service industry, which is why they were selected. But they were not given a special contract. They already had that contract.

GWEN IFILL: General Kelly, what about that transparency issue, though, the idea that it's so difficult to find out who's there, who's getting the money and even why?

MAJ. GEN. PATRICK KELLY: Well, I can't comment on that because you'd have to contact the State Department and USAID and the Pentagon because I can't give you those statistics, I work for a private firm.

GWEN IFILL: I'm not actually asking for your statistics, I'm wondering about your thought about whether there should be greater transparency on these matters.

MAJ. GEN. PATRICK KELLY: I just do not have the same personal conflict that Mr. Lewis has, because I know about the integrity, and I know exactly how contracts are procured. And there's a contracting officer in the case of the corps of engineers who is even independent of the commander. And they are not going to select a contractor on someone's advice or someone's demand because they know they'll go to jail. That's illegal, and it's unlawful. And they won't do it.

GWEN IFILL: Mr. Lewis, in fact, does what you found in your report suggest that the work is not getting done? Is the work getting done or is it's getting done for the best possible price?

CHARLES LEWIS: I mean, because this is the first look at contracts in two countries and it took six months to try to get even a piece of that picture, we are not able to answer about the work being done it's too soon. As you may know the General Accounting Office is doing an investigation that's going to take at least a year to answer the question you just asked. But I'm not trying to harp on the transparency issue, but Kellogg, Brown and Root, we are actually suing the Army Corps of Engineers, the wonderful group that we've just heard about, they released one work order out of thirty-one about that company, the Army Corps I'm talking about, they were unresponsive to the public about that. I have a problem. Why should the public not know how their money is being spent? It's that simple. And the fact is there has been contracting fraud over the years. We have profiles of 71 companies on our website or individuals that got contracts, and I would guess one or two dozen have had contracting fraud problems, and they've still gotten the contracts.

GWEN IFILL: General Kelly, you have time for a final comment.

MAJ. GEN. PATRICK KELLY: Yes. When I went into Kuwait, one of the first things I did, I made sure that we had an independent auditor agency accompanying us to Kuwait, which was the Defense Contract Audit Agency. We only had one. I understand in Iraq for most of the contracts over there they have not only the Defense Contract Audit Agency, they had the Army Audit Agency, and they have GAO, who is monitoring all of their contracts to ensure that there is no fraud or abuse, which is good. And that serves the public benefit.

GWEN IFILL: General Patrick Kelly and Charles Lewis, thank you both very much.

CHARLES LEWIS: Thank you.

MAJ. GEN. PATRICK KELLY: Thank you.

FOCUS FINAL CUT

JIM LEHRER: Now, the Reagan miniseries controversy, and to media correspondent Terence Smith.

TERENCE SMITH: Conservatives have won one more for the Gipper. After weeks of rumors that a planned CBS miniseriespresents a less-than-flattering portrait of former President Ronald Reagan, the network today announced that it is pulling the broadcast off the air. It will instead license the film to Showtime, a cable channel owned by CBS parent Viacom. The network denied that it acted under pressure, but in a statement, CBS said it does not believe the film presents "a balanced portrayal of the Reagans," a criticism leveled by the Republican National Committee and admirers of the 40th president. President Reagan's son, Michael, and the Senate Democratic leader, Tom Daschle, both spoke about the controversy today.

MICHAEL REAGAN: We're going to talk built because we're going stand up for my father. They can put it on cable, anywhere they want to put it. The reality of it is so much of it is a lie and not the Ronald Reagan that we know, it's the Ronald Reagan only the Hollywood left knows because that's the way they want to see him.

SEN. TOM DASCHLE: It smells of intimidation to me, it sounds like they were intimidated in making decisions that reversed earlier ones, and I'm disappointed.

TERENCE SMITH: Showtime announced late today that it will televise the film next year, and because of the controversy, will pair it with an on-air forum about the movie.

Joining us for more is Bernard Weinraub, who covers the entertainment industry for the "New York Times."

Bernie, welcome. What have you been able to learn today about why CBS in fact made this decision?

BERNARD WEINRAUB: Well, probably the most interesting thing about this whole episode is that nobody or very few people have actually seen this movie. Everybody is talking about it, on the right, on the left, in the center. But nobody has seen it. The people who have seen it are a couple people that at CBS, and so far as I know that's about it. Certainly some people outside of CBS have read the play. But as you know, the play and the final product are often quite different. So that we're talking about -- everybody is talking about something that they may not know too much about.

TERENCE SMITH: What about the decision itself? CBS insists it's was not made because of the pressure that has been brought upon them by the Republican National Committee, by the drumbeat of talk radio, by the friends of the former president. But I wonder if you find that credible given the fact that just two weeks ago some executives at CBS thought they, said they thought it was a perfectly fair portrayal.

BERNARD WEINRAUB: Yeah. I don't find the CBS version very credible. Certainly there was a drumbeat of opposition to the movie based on stories, based on an original story that on October 21 in the Times, the "New York Times" by Jim Rudeenberg who talked about the screenplay and talked about the fact that there was this tide of opposition from people who had worked for President Reagan or Republicans, and a tide of uneasiness about what was going to take place. But I think certainly CBS was hit by a lot of phone calls and certainly conservative commentators, the Drudge Report, a lot of people began weighing in on this whole thing.

TERENCE SMITH: Have you seen this before? Where a network faced with this sort of controversy pulls a fairly big production? This was to have been a four-hour mini-series to be broadcast on two nights later this month.

BERNARD WEINRAUB: Yes, it was a very hard profile show, it was going to be at the height of the sweep season, and they had invested a lot of money in it, and they had two stars, Judy Davis and James Brolin, and it was produced by Neil Marin and Craig Zadin who wonan academy award for Chicago and did the Judy Garland Show. I think there was, there was a real sense that this show was biased, that's why I think they dropped it.

TERENCE SMITH: You know, in its own statement CBS noted that it has done controversial historical films before, they mentioned one about Jesus and one about Hitler. What made this different?

BERNARD WEINRAUB: Well, Hitler was the most recent one of course, where there was pressure and CBS did make some editorial changes, that is they made some editing changes, which apparently pleased them and, and in the end turned out to be positive. I mean there wasn't any complaints insofar as I know once the film was aired. I think what made this different was that there were certain elements in the film that were probably untrue, certain statements that were attributed to Reagan, certain statements or actions that were attributed to Mrs. Reagan, that seem to have been untrue. And also I think one of the additional problems is, although CBS did pass on the script, and CBS executives certainly saw the movie, they saw it over the past couple weeks, I don't think the head of CBS, Les Moonves, actually saw the film, the full, you know, version of the film until after that Times story came out on the 21st. And I think then he got involved in it, and he saw it and I can't speak for him, but I think he then realized that from his point of view, there were problems in terms of its not just accuracy, but I think he felt fairness.

TERENCE SMITH: Is there any evidence of any connection between this decision by CBS and the fact that their parent company, Viacom, has issues pending before Congress right now that will certainly depend in part on Republican support?

BERNARD WEINRAUB: There could be. I mean I think Sumner Redstone is -- the man who runs Viacom is a Democrat. And I actually spoke to him today over the phone, and he denied any, he said he did not have any dealings at all on this whole thing, that it was really Les Moonves's call. I'm not sure that Viacom's dealings on Capitol Hill would have that much of an impact in terms of the Reagan mini-series.

TERENCE SMITH: Okay. Bernard Weinraub, thanks very much.

BERNARD WEINRAUB: Thank you.

FINALLY THE ELEGANT UNIVERSE

JIM LEHRER: Finally tonight: "The Elegant Universe." That's the name of a three-part series that concludes tonight on the PBS program "Nova." Its subject is string theory, a new branch of scientific research that tries to explain nothing less than how the universe works. Here's a short excerpt.

NARRATOR: String theory says we may be living in a universe where reality meets science fiction: A universe of 11 dimensions, with parallel universes right next-door. An elegant universe composed entirely of the music of strings. But for all its ambition, the basic idea of string theory is surprisingly simple. It says that everything in the universe, from the tiniest particle to the most distant star, is made from one kind of ingredient: Unimaginably small vibrating strands of energy called strings. Just as the strings of a cello can give rise to a rich variety of musical notes, the tiny strings in string theory vibrate in a multitude of different ways, making up all the constituents of nature -- in other words, the universe is like a grand cosmic symphony, resonating with all the various notes these tiny vibrating strands of energy can play. String theory is still in its infancy, but it's already revealing a radically new picture of the universe, one that is both strange and beautiful.

JIM LEHRER: Earlier, Ray Suarezspoke with the program's host.

RAY SUAREZ: Several years ago Brian Greene's book about string theory, called "The Elegant Universe," became a surprise best-seller. Now the Columbia University professor of physics and mathematics is bringing string theory to television.

Professor Greene, welcome.

BRIAN GREENE: Thank you.

RAY SUAREZ: If at the upper reaches of theoretical physics, at the blackboard and in the lab, string theory finally gets worked out and agreed upon, how will it change rank and file citizens of planet Earth's ideas about how the world works?

BRIAN GREENE: Well, it's won't change things in any real dramatic way immediately. I think that it will really put life as we know it in a larger context if we truly understood the basic laws that govern everything in the world-- the small, the big and everything in between-- and that's what string theory promises. But it's probably also worth pointing out that were you to have asked in the 1920s how the work on quantum mechanics would affect the world, I don't think people would have had much to say. But today we have cell phones, lasers, medical equipment, CD's, personal computers, all of which rely on the physics of quantum mechanics. So that's the wonder of it all. We don't know where it will lead, but it could lead to spectacular new places.

RAY SUAREZ: Well, did atoms and then did figuring out that atoms were made of even smaller things and now quantum mechanics and string theory, are they all following the same path-- an idea that eventually gets proven and worked out, and then the changes starts from there?

BRIAN GREENE: Yeah, sometimes there's a sense that developments in science overthrow previous ideas in thinking about the world, but that's usually not what really happens. More often than not, a development in science builds on what went before. So we are in fact following the same path, a path, if you, will that was laid down by the Greeks 2,500 years ago of trying to find the fundamental indivisible elements that make up the world. And our mathematical studies have taken us beyond atoms, beyond electrons, beyond neutrons and protons and quarks. They've taken us to this idea of little vibrating filaments of string. That is where the mathematics have so far taken us.

RAY SUAREZ: Is there a place though where our human limitations bump up against what can be proven and can be known, because we're just us and we've got our brains and it's hard for us to think in more dimensions than three?

BRIAN GREENE: Definitely. I can't think in more than three dimensions, even though I work on them all the time. I just use the mathematics at that point. But, for instance, what we do in the "Nova" program is try to strip away the mathematical details and go as far as we can visually. But you're right, there's no guarantee. There's no guarantee that this thing we have inside our heads will be able to fathom the deepest workings of the universe. We might hit a dead end at some point. We haven't yet. That's the amazing and wonderful thing. Every time we've tried to answer a question in physics through thought and experiment, sooner or later we've been able to make that next step. So we haven't hit any walls yet, but we might.

RAY SUAREZ: Until then, are scientists like particles bumping up against each other and creating new things?

BRIAN GREENE: Well, certainly the best developments in physics often do come when there is conflict. And in fact, string theory emerged from a conflict between two laws of physics-- Einstein's Theory of Gravity on the one hand, and quantummechanics on the other. They bumped heads and that gave rise to string theory. Now not everybody in the physics community is in favor of string theory. It's a somewhat controversial idea, but that's a healthy way for things to be. Until something is proven experimentally, it should be controversial, because we won't believe it until it makes contact with the world as we know it.

RAY SUAREZ: Professor Greene, thanks for being with us.

BRIAN GREENE: Thank you.

RECAP

JIM LEHRER: Again, the major developments of the day: Three explosions rocked the center of Baghdad. Iraqi police said mortars hit inside the U.S.-controlled green zone, where U.S. military bases and Iraq's coalition headquarters are located. Prudential Securities became the latest target of a probe into the mutual fund industry. Six former employees of the Boston office were charged with improper trading. And voters across the country headed to the polls on this off- year election day. We'll see you online, and again here tomorrow evening. I'm Jim Lehrer. Thank you and good night.